Congress Passes Special Needs Trust Law - Fixes 23 Year Old Error

The Special Needs Trust Fairness Act provides that individuals with disabilities can now create their own special needs trusts instead of having to rely on others. The Act was included as Section 5007 of the 21^st Century Cures Act which was signed into law by the President on December 13, 2016.

The Act corrects an error in existing law that has created needless delay and legal expense for many disabled individuals. Congress first established rules for special needs trusts in 1993. One common type is the self-funded special needs trust (also known as a (d)(4)(A) trust) which is authorized by Section 42 U.S.C. § 1396p(d)(4)(A) of the Medicaid law.

This type of trust is created from the funds of a disabled beneficiary.  It allows a beneficiary who is receiving Medicaid to protect some savings for later use in paying for critical living expenses without losing their equally critical Medicaid benefits.

But due to a drafting error in the 1993 law disabled individuals have not been permitted to create their own trusts. For the past 23 years the law has stated that only a parent, grandparent, legal guardian of the individual, or a court can establish this type of special needs trust. In effect the law has presumed that the disabled individual lacks the mental capacity to handle this aspect of their financial affairs.

This has resulted in unnecessary delays and legal and court costs for individuals who wish to establish a special needs trust but do not have parents or grandparents to help them. These individual have been forced to petition the court to set up the trust.

Under the new law capable individuals with disabilities are now able to set up their own special needs trust without having to petition the court and undergo unnecessary legal costs.

In recognizing that many disabled individuals are competent to manage their finances this new law is similar to another recent law which authorizes some disabled individuals to create ABLE accounts.  ABLE accounts are useful but have many restrictions that do not apply to special needs trusts.

Disabled individuals should seek the advice of an experienced elder law/special needs lawyer to help evaluate their options. If you reside in Pennsylvania, you can contact my law firm, Marshall, Parker and Weber, for expert advice.

Further Reading

The Special Needs Trust Fairness Act is located in Title V, Section 5007 (page 440), of the 21^st Century Cures Act.

Pass the Special Needs Trust Fairness Act (Marshall, Parker and Weber blog, September 28, 2015).

New Law Authorizes PA ABLE Savings Accounts (Marshall, Parker and Weber blog, April 19, 2016).

Job Opening for Lawyer in Wilkes-Barre, Pennsylvania

Marshall, Parker & Weber, LLC, an elder law and estate planning law firm, is seeking a full-time attorney for its Wilkes-Barre Law Office. Candidate with strong ties to northeast PA and 3 or more years’ experience in elder law and estate planning is preferred.  Candidate must be a community-minded individual. Candidate must have Pennsylvania Bar admission. There are no health care benefits offered with this position. Salary is commensurate with experience.

Please submit resume, references and salary requirements to:

lhillyard@paelderlaw.com

or mail to:

Marshall, Parker & Weber, LLC

ATT: Lisa M. Hillyard, Business Manager

49 E. Fourth Street, Suite 105

Williamsport, PA 17701

No phone calls please.

Federal Estate Tax Exclusion Increases. Will this tax survive 2017?

The IRS has released the annual inflation adjustment amounts and tax rate schedules that will apply in 2017. Included are the new gift and estate tax exclusion amounts for 2017. The new inflation adjusted numbers are available in Revenue Procedure 2016-55. They apply generally to transactions or events occurring in calendar year 2017.  

Estate and Gift Tax Exclusion amounts for 2017

$5.49 million - Federal Estate Tax Basic Exclusion Amount

$5.49 million - Lifetime Gift Tax Exclusion

$14,000 - Annual Gift Tax Exclusion

The new estate and lifetime gift tax exclusion amounts are an increase of $40,000 from 2016. Because a husband and wife each get their own exemption, a married couple can give away $10,980,000 million tax-free in 2017 (provided they have not previously used up any of their exclusions.)

The top tax rate on amounts above the exemption limit is 40%. The high exemption amounts have pretty much done away with estate tax as an estate planning consideration for most people.

The current estate tax regime may see dramatic legislative change next year. President-Elect Trump and House Speaker Paul Ryan have both proposed ending the estate tax.

But Donald Trump would add a new tax on the appreciation in value of assets owned by a decedent at death. There would be a $5 million exemption for single filers and a $10 million exemption for married couples filing jointly.  It is not clear whether this new capital gains tax would be imposed at the time of death of the decedent or only at a later date when the decedent’s beneficiaries sell the appreciated property.

While doing away with the federal estate tax, the House Republicans’ Plan would leave in place the current “step-up” in basis adjustment for most appreciated assets at the death of the owner.

It’s too soon at this point to know what will eventually happen. Advisers are generally suggesting that clients who might be impacted by the estate tax keep their current estate plans in place for now. One exception might to be to revisit any plan that involves paying gift tax currently.